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Bretton Woods Observer Autumn 2023
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF

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1. WBG gender strategy risks undermining new human rights language
with continued private sector bias
2. IMF acknowledges capital controls have helped Argentine economy
3. Ukraine's post-war agricultural recovery: Returning to the way
things were is not enough
Guest analysis by Vlada Martsynkevych, BankWatch
4. Debt sustainability assessment reform essential to address
retrogression of international human rights and 'crisis of
development'
5. Oligarchs and corporations are expanding control over Ukraine's
agricultural land with help from the IMF and the World Bank
6. Civil society raises concerns of widespread IFC noncompliance with
its own Performance Standards on greenhouse gas emissions
7. The IMF in Kenya: Regressive taxation is the new face of austerity
8. MIGA's new insurance for voluntary carbon offsets risks propping
up junk assets, say campaigners
9. Clock is ticking: Will IMF's 16th Quota Review mean a further loss
of legitimacy for the Fund?
10. Assessing the Bretton Woods Institutions' legacy: Critical views
from the MENA region and Sub-Saharan Africa
11. Balancing ambitions and bridging divides at multilateral
development banks
Guest analysis by Marcos Vinicius Chilliatto, Inter-American
Development Bank
12. The 2021 SDR allocation was beneficial for the global economy,
but was it sufficient to address the scale of the crisis?
13. Sri Lankan trade unions call out IMF and World Bank's dismantling
of country's social protection system in favour of ineffective
targeting schemes

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GENDER/analysis

WBG gender strategy risks undermining new human rights language with
continued private sector bias

SUMMARY
World Bank draft gender strategy for 2024-2030 released, marking
beginning of public consultation period
Civil society warns of need to move away from Bank's Maximising
Finance for Development model as austerity sweeps the globe
Draft steps up to name gender a human rights issue but fails to
address barriers to gender equality perpetuated by Bank's
macroeconomic model

After months of delay, the World Bank has finally launched the
consultation process for its new gender strategy. However, civil
society organisations (CSOs) remain concerned that the plan falls
short of offering a much-needed rethink of how the Bank's neoliberal
policy orthodoxy has negatively affected women and girls.
Bank-watchers worry the institution's focus on gender will wane as
attention turns to the Evolution Roadmap, the Bank's response to the
polycrisis and the fresh agenda of new Bank President, Ajay Banga
(see Observer Summer 2023, Spring 2023).
While the draft strategy includes some promising new human rights
language, overall, it remains rooted in the logic of a private
sector-led approach to development. The strategy builds on three
objectives: (1) to end gender-based violence (GBV) and elevate human
capital; (2) expand and enable economic opportunities; and (3) engage
women as leaders. Much of the language feels like a rewording of the
four pillars of the existing gender strategy and is likely a
reflection of the Bank's initial plan to merely 'update' the previous
strategy, instead of drafting a new one following pressure from civil
society in recent months.
Civil society has long criticised the Bank's instrumentalist approach
to women's empowerment, the lack of accountability in assessing
gender impacts across all operations, and the absence of a
macroeconomic perspective on gender (see Observer Winter 2016). The
draft references the Maximising Finance for Development (MFD)
approach throughout, mirroring its deepening in the Evolution Roadmap
despite its poor track record (see Observer Summer 2023). Just as
with the Roadmap draft, the Bank seems unwilling to root its
strategic processes in a genuine analysis of evidence, demonstrated
by a 10-year retrospective report launched in June, which primarily
discusses the worsening of women's rights and poverty as the result
of external events, thus absolving the Bank of any responsibility for
the crisis. Instead, the strategy's use of private-sector logic
remains prevalent, describing women in terms of 'human capital' –
language that centres profit-driven motives as the Bank's primary
justification for investing in gender issues. Nowhere in the document
is the public sector or public spending mentioned without reference
to the private sector, an approach unlikely to change under new
President Ajay Banga's private finance push (see Observer Summer
2023).
Macro still missing
Unlike the existing strategy, the new draft discusses gender in terms
of "power dynamics" and "structural limitations". Yet, it refers only
to the fiscal affairs of "client countries", failing to extend this
analysis to the Bank's own role in promoting neoliberal policy
conditionality. Civil society critics continue to argue that the Bank
will undermine its targeted gender efforts if its macroeconomic
policies remain gender blind and unaccountable. Grace Namugambe of
Uganda-based civil society organisation SEATINI commented, "The World
Bank's draft gender strategy claims progress while entrenched in
neoliberalism, neglecting its role in perpetuating gender inequality.
Real change requires introspection, recognizing women as empowered
individuals whose rights must be prioritized, not mere assets serving
private sector interests."
Despite research showing that 85 per cent of the world's population
will live under austerity measures in 2023, often on explicit advice
of the Bank and Fund, fiscal consolidation impacts are not mentioned
once in the strategy. This will undoubtedly spark concern for many,
given that the strategy claims to "respond to the global context."
Such conditions will erode key social protection systems, cut or cap
the wages and number of teachers and public healthcare workers,
eliminate vital subsidies, privatise public services, and reduce
workers' rights as countries aim to "B-ready" for a 'business
enabling environment' (see Observer Summer 2023). Women will once
again be the shock absorbers of such policies. The Bank continues to
support austerity through prior actions in its development policy
finance instrument, which have a particularly negative impact on
women and girls, as evidenced in a January report by US-based
organisation Gender Action (see Inside the Institutions, What is
World Bank Development Policy Financing?).
The strategy's continued focus on "advancing women's participation,
decision-making and leadership" risks promoting the neoliberal idea
that women are responsible for their own circumstances, while
ignoring structural conditions that are often at the core of gender
inequality. The strategy seems determined that equality of
opportunity to participate in economic activity is the solution to
gender inequality. Yet, it is well documented that 'meritocracy' does
not account for intersections of class, race, age and gender, a
concern given the new strategy's focus on intersectionality.
Moreover, the assumption that women are not already working is
inaccurate, and the focus on economic growth as a macroeconomic
solution to gender inequality is misguided. This has been
demonstrated by recent evidence highlighting that gross domestic
product (GDP) is a blunt instrument for measuring whether an economy
delivers positive net benefits for women and girls. An August report
by Oxfam found that 65 per cent of women's weekly working hours
globally are unpaid and excluded from GDP calculations. Anam Parvez
Butt, lead author of the report, commented: "The strategy should
challenge rather than reinforce narratives around the market economy
representing the entire economy which it currently does through
highlighting the underrepresentation of women in the labour force and
framing GDP growth as universally positive."
Still time for change in Marrakech and beyond
Evidence that the Bank's gender team responded to some civil society
calls is visible in the draft strategy. On the 75th anniversary of
the Universal Declaration of Human Rights (UDHR), gender equality is
acknowledged as a human right "at the core of development". The draft
notes that gender equality and women's empowerment are enshrined in
Sustainable Development Goal 5 and in the Convention on the
Elimination of All Forms of Discrimination Against Women. The
extensive focus on tackling GBV throughout is framed through human
rights language, which some will see as a direct response to recent
calls from CSOs to swap references to women as "human capital" with a
rights-based approach to discussing gender equality (see Observer
Summer 2023).
October's World Bank and IMF Annual Meetings in Marrakech, Morocco,
offer a space for the Bank to expand its commitment to gender
further. The Bank should commit to gender impact assessments of its
macroeconomic approach, learning lessons from research that
demonstrates the trade-offs, inequality impacts and historical
failures of the Bank's market-led policy paradigm. This should
include analysis of the gendered impacts of public-private
partnerships and blended finance as a financing mechanism for public
services (see Briefing, Learning lessons from the Covid-19 pandemic:
The World Bank's macroeconomic policies and women's rights). The Bank
must complete an impact assessment of the gendered effects of its
macroeconomic policies over the past decades, utilising resources
beyond those of the limited gender team. After all, it considers
mainstreaming gender issues to be a "shared commitment across the
'institution."'
tinyurl.com/WBGenderUpdate

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In this issue

Ukraine's post-war agricultural recovery: Returning to the way things
were is not enough by Vlada Martsynkevych
Clock is ticking: Will IMF's 16th Quota Review mean a further loss of
legitimacy for the Fund?
Balancing ambitions and bridging divides at multilateral development
banks by Marcos Vinicius Chilliatto
The 2021 SDR allocation was beneficial for the global economy, but
was it sufficient to address the scale of the crisis?

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FINANCE/news

IMF acknowledges capital controls have helped Argentine economy

The IMF has acknowledged, in a country report published in April,
that the capital flow management measures (CFMs) Argentina has
implemented since 2019 to restrict destabilising capital outflows
have been beneficial. The measures, including currency exchange
restrictions and multiple currency practices, were approved by the
Fund's board and contributed to the country comfortably meeting the
Fund's performance criteria for the continuation of its emergency
Extended Fund Facility.
The IMF categorically opposed CFMs until 2012, when it issued its
Institutional View (IV) on the Liberalization and Management of
Capital Flows, which recommended controls be used as a last resort in
response to a capital inflow surges. The 2022 IV review included
limited exceptions but, as Professor Kevin Gallagher of Boston
University noted, remained silent on the need to regulate capital
outflows to prevent capital flight (see Observer Spring 2022). The
IMF's view has been criticised as unduly constraining policy space,
especially for economically struggling states in the Global South.
tinyurl.com/IMFCapitalControlsArgentina

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LAND/analysis

Ukraine's post-war agricultural recovery: Returning to the way things
were is not enough
Guest analysis by Vlada Martsynkevych, BankWatch

SUMMARY
World Bank and other IFIs have pushed reforms on Ukraine to enable
the development of big agribusiness
Reforms have had negative long-term environmental and social impacts,
and have not stimulated the country's economic development
Future of Ukrainian agriculture should prioritise small farmers, land
market transparency, environmental sustainability and address climate
change

A recent sequence of events has brought the fragility of the world
food system into sharp focus: First the pandemic, then Russia's war
on Ukraine, and the consequent shifts in global patterns of
agricultural trade. The Middle East and Africa have been hit the
hardest. As prices for imported food staples soar, the people in
these regions, heavily dependent on Ukraine's food exports, are being
pushed further into food insecurity.
The current system for food production in Ukraine, based on
large-scale monoculture production and centralised logistics and
processing, lacks resilience and is highly vulnerable to external
threats. The World Bank and other international financiers have
played a controversial role in the development of Ukraine's
agribusinesses. Historically, they have promoted reforms in the
agricultural and land sectors that have led to long-term
environmental impacts, the centralisation of financial and natural
resources, and the subsequent shift of the whole country towards
large-scale intensive production (see Observer Spring 2023).
Agriculture remains a priority for the International Finance
Corporation (IFC), the World Bank's private sector lending arm, which
plans to invest $1.5 billion in Ukraine's banking, agriculture and
infrastructure sectors as part of reconstruction efforts.
Take the case of Myronivsky Hliboproduct (MHP), Ukraine's and
Europe's largest poultry producer. Despite complaints from local
communities about the negative environmental impact of MHP's
operations, international development banks have shown a consistent
eagerness to pour money into MHP. The ongoing investigation by the
independent complaints offices of the European Bank for
Reconstruction and Development (EBRD) and the IFC poses a
reputational risk for both institutions. Moreover, the IFC is
considering a new loan to MHP.
As reconstruction beckons, a new approach is needed
Investments must be used strategically to achieve a deeper
qualitative transformation of the sector as Ukraine has ambitions to
become an equal part of the EU family. EU institutions, public
investors and civil society must come together to explore ways of
rebuilding and reorienting the country's agricultural system. Putting
small farmers, transparency and sustainability at the heart of these
efforts should be at the top of any agenda. Decarbonised and
decentralised production that can adapt to climate change would be
less vulnerable and more resilient, both for Ukraine and for global
food security.
The second Ukraine Rapid Damage and Needs Assessment – jointly
undertaken by the World Bank, the Government of Ukraine, the European
Commission and the United Nations – estimates that the reconstruction
and recovery needs for agricultural production in Ukraine will be
$29.7 billion from 2024 to 2033. However, the assessment recognises
its own limitations in calculating long-term indirect losses to the
sector, such as soil cover degradation and pollution caused by
military action. Thus, experience and financing would be needed to
restore damaged land and the agricultural revival of de-occupied
territories in Ukraine.
Moreover, each new day of the war is deepening long-term consequences
for agricultural production and rural livelihoods. For the
reconstruction and further development of liberated territories to be
successful, Ukraine must ensure rural and agricultural viability.
Firstly, rural areas – despite having the highest level of poverty in
Ukraine – serve as workplaces for 80 per cent of all agricultural
workers, including informal employees. That's why levelling the
playing field when it comes to accessing natural and financial
resources, knowledge and information technologies for small- and
medium-sized producers in the agricultural sector is essential.
Secondly, measures aimed at mitigating and adapting to climate change
are urgently needed. Over the last decade, prior to the full-scale
war, out of all the sectors in Ukraine, agriculture exhibited the
sharpest upward trend in the growth of greenhouse gas emissions,
increasing by almost 30 per cent. Additionally, the winter wheat
yield in Ukraine's steppe zone is one of the most volatile globally,
demonstrating the severe impacts of climate change.
Finally, ensuring transparency of the land market is another
important consideration. The land market has been functional
throughout the war. However, due to martial law, it is difficult to
assess the concentration of land ownership and the level of public
monitoring involved. Effective state regulation and data transparency
need to be prioritised in the second phase of Ukraine's land market
reform, which is due to begin in 2024.
Although many might expect production to return to pre-war levels and
even increase, the recovery of the sector should go beyond simply
chasing growth targets at all costs. International financial
institutions should focus on ensuring liquidity for smaller farms,
guaranteeing environmentally sustainable investments and a
transparent land market for the recovery of the agricultural sector.
tinyurl.com/UkraineAgriculture

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RIGHTS/news

Debt sustainability assessment reform essential to address
retrogression of international human rights and 'crisis of
development'

SUMMARY
Several new reports add to the evidence of the human costs of
international inaction on mounting debt crisis
DSAs reform urgent, as debt servicing continues to undermine
countries' ability to meet human rights obligations

This year marks the 75th anniversary of the Universal Declaration of
Human Rights (UDHR). The anniversary takes place in the context of a
human rights retrogression, which results in part from the
consequences of soaring debt. The international community's capacity
to respond to mounting concerns is significantly hampered by the
IMF's lack of a human rights policy and related unwillingness to heed
calls to integrate states' international human rights obligations
into its Debt Sustainability Analyses (DSAs), which it conducts
jointly with the World Bank (see Observer Autumn 2022).
As documented in a July UN Development Programme report, inaction on
the debt crisis, combined with deteriorating global economic
conditions has significant human costs (see Observer Spring 2023,
Winter 2020). Human Rights Watch reported in April 2022 that its
analysis of 16 countries, "found that targeted programs [supported by
the IMF] excluded millions of people who were in need of social
security to protect their rights, leaving them without adequate
food." Similarly, a 2022 Oxfam analysis of IMF programming found
that, "13 out of the 15 IMF loan programs negotiated during the
second year of the pandemic…could put vital public services at risk.
The IMF is also encouraging six additional countries to adopt similar
measures" (see Observer Autumn 2023).
UN human rights experts call for revamp of debt sustainability
analysis to go beyond financial sustainability
The central role played by DSAs in the current context is made clear
by the UN Global Crisis Response Group's A World of Debt report
released in July, which stressed that the rising debt burden and
"unfair system" increases the vulnerabilities of low- and
middle-income countries. The report noted that, "In total, 48
countries are home to 3.3 billion people, whose lives are directly
affected by underinvestment in education or health due to large
interest payment burdens."
The evidence cited above substantiates calls for the inclusion of
international human rights obligations into DSAs. Attiya Warris, the
current UN Independent Expert on Debt and Human Rights stressed in
her August 2021 report, "Current practice examines debt
sustainability through a narrow economic approach…Debt sustainability
assessments performed by multilateral creditors – IMF and the World
Bank – allow for the label of 'sustainable' to be applied unduly, in
contexts where debt servicing may be depriving a State of resources
needed to guarantee human rights." Waris builds on her predecessor's
2016 report, which argued that DSAs must incorporate "human rights
and the social and environmental dimensions of sustainability."
The integration of human rights variables into DSAs would signal the
willingness of the IMF and its most powerful shareholders to truly
honour the 75th anniversary of the establishment of the international
human rights system. It would mark a significant step in the Fund's
willingness to heed long-standing civil society calls for the
institution to develop a human rights policy that underpins all of
its programming and to ensure its policy and programmes are
consistent with principles for human rights in fiscal policy, and
benefit from the application of the UN Guiding principles on human
rights impact assessments of economic reforms.
tinyurl.com/DSAHumanRights

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ENVIRONMENT /news

Civil society raises concerns of widespread IFC noncompliance with
its own Performance Standards on greenhouse gas emissions

New analysis by US-based organisation Bank Climate Advocates (BCA) –
involving a review of over 300 projects – has raised concerns that
the International Finance Corporation (IFC), the World Bank's private
investment arm, has failed to ensure compliance with its own
Performance Standards related to greenhouse gas emissions.
In an unpublished briefing shared with the Bretton Woods Project, BCA
noted: "In nearly all cases, IFC failed to ...[adhere] to the
requirements of its own policies pertaining to greenhouse gas (GHG)
emissions quantification, alternatives analysis, mitigation,
disclosure and affected communities impact assessment that apply
before it approves financing for a project."
BCA and 11 other civil society organisations (CSOs) raised concerns
with IFC's management in May, and 14 CSOs wrote to the IFC in
September, urging corrective action, noting, "IFC Management must
adhere to its board adopted policies now…including those applicable
to GHG emissions and climate change. Failure to do so runs afoul of
its obligations and results in the IFC systematically working against
its own mandate for sustainable development and poverty reduction by
causing harm to communities in its investment regions." IFC provided
a preliminary response to the concerns in July.
tinyurl.com/IFCPerfomanceGHG

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FINANCE/news

The IMF in Kenya: Regressive taxation is the new face of austerity

SUMMARY
Kenya's vast regressive new tax measures on the eve of a new IMF loan
show clear fingerprints of the Fund
Debt balloons while citizens' incomes are extracted to pay foreign
creditors amid cost-of-living crisis, depressing productivity and
perpetuating debt trap

In July, the IMF approved close to $1 billion in new loans to Kenya,
rewarding the government for a host of new taxation measures closely
advised by the Fund. Citizens took to the streets in wide-spread
protests in which around 30 were killed and hundreds arrested, as the
new tax hikes threaten to aggravate an already severe cost of living
crisis. A public letter from the Okoa Uchumi campaign, representing
19 Kenyan civil society organisations, warned that "the glaring lack
of consideration of the effects of austerity measures on growing
inequality, hunger, and poverty in the country" was "harming the most
vulnerable of our population" (see Dispatch Spring 2021).
The new tax regime – enshrined in President Ruto's Finance Act –
includes doubling value added tax (VAT) on fuels from 8 to 16 per
cent, raising taxes on food, mobile money transfers, digital content
creation and salaries, "rationalising" public sector employment, as
well as taking a levy from all employees and employers to fund a
problematic public-private partnership for "affordable" housing (see
Observer Spring 2019). The Finance Act was already challenged in
court and suspended, but the VAT measures were pushed through.
Without affordable green energy alternatives available, rising fuel
prices impact poor consumers and small business owners most severely,
especially women, as prices for transport, cooking and many
associated products go up (see Observer Autumn 2021; Briefing, The
IMF, Gender Equality and VAT). Prices for food staples like maize
have more than tripled. On the other hand, private wealth, land
holdings and large corporations remain unscathed by the reforms.
Meanwhile, the violent police crackdown on protesters has prompted
outcry from Amnesty International and the United Nations.
Raising taxes from the poor to pay debt undermines growth and
productivity
Okoa Uchumi warned that the IMF's "focus on stabilization rather than
growth and development" threatened not only to harm the poor and the
provision of gender-responsive public services, but also come at the
expense of economic growth and productivity as excessive taxes
"undermine entrepreneurship efforts". Proposed tax increases on
smallholder farmers not only threaten food security and livelihoods
for the poorest, but also further burden a sector that already
operates under small margins and environmental challenges.
The supposed justification for this vast tax regime is that it will
restore fiscal balance and reduce Kenya's reliance on external debt.
About half of the projected revenues will go to debt repayment.
Ironically, just six months into Ruto's presidency, debt had already
ballooned from about $28.7 billion to $35 billion as of April 2023.
The priority does not seem to be supporting economic transformation
or even long-term debt reduction, but austerity reforms that enshrine
an extractive model where more and more of citizens' incomes are
channelled to international creditors (see Observer Spring 2023).
tinyurl.com/RegressiveTaxation

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ENVIRONMENT/news

MIGA's new insurance for voluntary carbon offsets risks propping up
junk assets, say campaigners

The Multilateral Investment Guarantee Agency (MIGA), the World Bank's
risk insurance arm, has proposed new political insurance for
voluntary carbon offset schemes, according to reporting by website
Climate Home in June. Climate Home noted, "The agency's foray into
the carbon market comes as several developing nations are moving to
regulate or restrict the trade of credits generated within their
borders."
US-based Oakland Institute criticised the move, noting in an article
in late July that MIGA's efforts to protect the voluntary carbon
market, which is often used by private companies – including fossil
fuel and other polluting industries – to fulfil their net-zero
pledges, "blatantly ignores recent research exposing the market's
rampant integrity issues, greenwashing claims, and 'junk' carbon
offsets that do nothing to genuinely reduce emissions." It noted, "A
study by the European Commission, for instance, revealed that 85
percent of offset projects under the UN's Clean Development
Mechanism…from 2013 to 2020 failed to uphold environmental integrity
and reduce emissions."
tinyurl.com/MIGACarbonOffset

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IFI GOVERNANCE/news

Clock is ticking: Will IMF's 16th Quota Review mean a further loss of
legitimacy for the Fund?

SUMMARY
Recent BRICS enlargement represents latest attempt to increase Global
South representation at international institutions
Geopolitical context is hostile to an IMF quota review, with China's
quota share being a source of contention
To avoid further deterioration of legitimacy, the IMF should at least
agree on incremental reforms of quota system

As the global system faces complex challenges of a slower growth
outlook, high inflation, and surging debt levels, the enlargement of
the BRICS group following the Johannesburg Summit in August
represents the latest attempt to reshape the global world order. In
their Summit declaration, BRICS leaders demanded a bigger say in
global affairs, repeatedly calling for "greater representation of
emerging markets and developing countries" in international
institutions, underscoring the urgency of reforming the IMF's
governance structure. This structure – based on a quota system that
concentrates formal decision-making power in the hands of a few
wealthy countries – is not only undemocratic and neo-colonial, but no
longer reflects current economic realities (see Inside the
Institutions, IMF and World Bank decision-making and governance).
The first BRICS expansion in 13 years is set to double the group's
membership and extend its global reach, adding new pressure for
reform of the IMF, which is currently engaged in its 16th General
Review of Quotas, due to be completed by December 2023. The group's
attempt to shift the global balance of power is gaining support in
the Global South, where many countries feel marginalised by an
international system they see as dominated by the US and its wealthy
allies. The IMF is no exception, with the EU and the US dominating
the decision-making structure of the institution with a voting shares
of 29 and 16.5 per cent respectively, giving them de facto veto power
over all major decisions of the Fund, which require an 85 per cent
majority.
Legitimacy is waning as US and Europe run out of excuses for blocking
reform
The goals and commitments for the current quota review have been on
the table with similar language for at least 15 years, namely,
continuing "the process of IMF governance reform, including a new
quota formula as a guide" and ensuring "the primary role of quotas in
IMF resources." These goals, however, contradict what is
geopolitically possible. The rise of middle-income countries (MICs),
principally China, means that a quota review that adequately reflects
current economic realities would give China a significant quota
share, making it the second biggest IMF shareholder, easily
overtaking Japan (see Observer Winter 2017). Given that such a shift
would have to come at the expense of European powers and the US would
lose its veto power, a full realignment of quotas will likely be
blocked by the West.
With the BRICS expansion, it seems that China is working hard to
expand alliances and forge alignment amongst MICs. This will be
difficult as the group is a mix of powerful autocracies, and
middle-income and developing democracies with widely diverging
interests. Aligning MICs around a shared quota reform strategy will
be even harder as the group is nearly equally under- and
over-represented by the existing formula.
In this geopolitical game, vulnerable low-income countries (LICs)
have the most to lose. While most likely to borrow from the IMF, they
have limited influence to determine the frameworks for policy advice
and conditionality attached to their loans (see Inside the
Institutions, What are the main criticisms of the World Bank and the
IMF) – which often include stringent fiscal consolidation policies
such as privatisation of public services (see Observer Winter 2018)
and cutting social protection programmes, measures with adverse
impacts on poverty, inequality and human rights (see Observer Summer
2023).
IMF decries fragmentation, while doing little to heal wounds
In this context, the current prospects for meaningful quota reform
are limited. The IMF's main ambition is to achieve an
equiproportional increase of quotas, by keeping existing quota shares
but increasing their absolute value, thereby ensuring an increase in
IMF resources. In particular, the Fund's quotas would need to
increase by as much as 267 per cent, or $1.16 trillion, to cover the
gross external financing needs of the most vulnerable countries. But
even that might be hard to achieve if some countries hold this
hostage to force other reforms. "What is mostly lacking are not new
ideas or new formulas, but the political will on the part of the
dominant shareholders to cede space to dynamic developing economies,"
highlights Paulo Batista Nogueira Jr., former Brazilian IMF executive
director and vice-president of the New Development Bank.
Advanced economies should, at the very least, work to align MICs
overrepresented by the current quota formula and bring to their side
LICs by offering some valuable concessions such as increasing the
proportion of basic votes, implementing the G24's long-standing
request to allocate one more seat on the IMF executive board to
Sub-Saharan Africa, or decoupling Special Drawing Rights allocations
from the quota system, as proposed by United Nations Conference on
Trade and Development. Although this falls well short of the major
reforms needed, such measures would at the very least ensure that the
IMF avoids further deterioration of its legitimacy.
tinyurl.com/IMF16Quota

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IFI GOVERNANCE/analysis

Assessing the Bretton Woods Institutions' legacy: Critical views from
the MENA region and Sub-Saharan Africa

As the 2023 World Bank and IMF Annual Meetings take place in Morocco,
returning to the African continent after 50 years, BWP has launched a
collection of essays by authors from MENA and Sub-Saharan Africa. The
pieces provide a retrospective of the role played by the Bank and
Fund in the region and argue that the hardships faced by the poor and
marginalised, and the development challenges confronted by states,
are to a significant degree the result of their current and historic
policies and programmes, which support an unjust and extractionist
world economic order.
tinyurl.com/BWPMENA2023

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FINANCE/analysis

Balancing ambitions and bridging divides at multilateral development
banks

Guest analysis by Marcos Vinicius Chilliatto, Inter-American
Development Bank

SUMMARY
The World Bank Roadmap will impact all multilateral development banks
Its success depends on the willingness of developed countries to
bridge the gap with developing countries
This requires increasing voice and decision-making power of
developing countries and heeding calls for a capital increase

The discussions about the World Bank's Evolution Roadmap impact most
multilateral development banks (MDBs), which are largely focused on
ways to deliver more resources and enhance effectiveness to address
global challenges. Actions on climate change mitigation and
adaptation are at the centre of the agenda, which is largely led by
developed countries. While most developing countries generally
support the agenda, they have stated that the institutions' actions
on environmental sustainability must not defund the fight against
poverty, hunger and inequality, and must focus on bolstering economic
growth after the impacts of the Covid-19 pandemic – therefore
proposing the need for bigger MDBs and mobilisation of private
resources. Furthermore, they argue that the effectiveness of a reform
agenda depends on increasing the voice of developing countries and a
more balanced role in decision-making. Given MDBs finance must be
used to meet the demands of borrowing countries, their true ownership
of the decision-making is critical to ensure success.
A world of evolving challenges and the need to remain relevant
brought about MDBs reform agenda
MDBs need to respond to the climate crisis, find ways to expand
financing volumes and increase the development effectiveness of
projects executed within countries. When it comes to resources, the
focus of current discussions is mainly on using capital more
efficiently, including via the G20's review of the MDBs' Capital
Adequacy Framework and proposed balance sheet optimisation measures
(see Observer Autumn 2022); developing models for the use of IMF
Special Drawing Right (SDRs; see Inside the Institutions, What are
Special Drawing Rights (SDRs)?; Observer Autumn 2023, Spring 2022);
creating new forms of hybrid capital to mobilise resources while not
requesting parliaments approvals for capital contributions; among
others.
These alternatives, while not irrelevant, have proven to be small in
comparison to development financing needs. While there is no
technical consensus yet on the proper model for using SDRs in
development banks, MDBs' administrations are doing their best to move
towards a less conservative approach on risk appetite therefore
optimising balance sheets and lending more, but a capital increase
from shareholders would deliver multiple times more, according to
World Bank estimates. The same estimations show hybrid capital would
be costly for borrowers, approximately 250-300 basis points higher
than the market borrowing costs of the International Bank for
Reconstruction and Development, the Bank's middle-income country
lending arm. Additionally, such measures carry uncertainties about
their real impact on governance. Given the pro-cyclical behaviour of
private financing in times of systemic crisis, it is hard to
anticipate its availability when countries need MDBs the most. Thus,
a significant disparity exists between the ambitious climate agenda
and the financial measures put forward. Mobilising significant funds
for development demands coordination of public and private sectors
and creativity with balance sheets, but it is also imperative to
listen to developing countries warning that a more efficient use of
current capital will not overcome the need for capital increase
considerations.
Advancing the climate agenda in a holistic manner, and aligning it
with both social and economic development, may lead to consensus.
This is not solely because there can't be trade-offs in financing
these priorities, but also because they can be virtuously integrated,
and mutually reinforcing. Just as social inclusion contributes to
economic growth by boosting consumption and production through rising
incomes for families, it also directly benefits the climate, as local
companies and workers can move away from activities that harm the
environment. Environmental protection initiatives, be it through
sustainable infrastructure, alternative energy sources, or enhanced
efficiency and investments in decarbonising industries, stimulate
demand for various goods and services, foster innovation spillovers,
and create higher-quality employment opportunities. Consequently,
this positively impacts social inclusion and economic growth, which
in turn bolsters fiscal revenue, thereby enhancing the government's
capacity to deliver relevant environmental and social policies.
The global challenge of addressing climate change compounds the
historical imperatives of eradicating poverty and reducing
disparities both within and between nations. It is necessary for
wealthier nations to prioritise climate change and massively
decarbonise, while developing countries must coordinate to ensure
that the resources are directed through MDBs for efficient
utilisation in adaptation and mitigation efforts. Developed countries
should eventually recognise that the ambitious climate agenda will
also require ambition with regard to public finance for capital
increases for MDBs. To politically achieve effective reforms, the
voices of developing countries need to gain proper representation in
decision making in the international financial architecture, so an
integrated agenda can be crafted, nurturing a sense of ownership
among borrowing countries.
tinyurl.com/WBGRoadmapMDBs

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FINANCE/news

The 2021 SDR allocation was beneficial for the global economy, but
was it sufficient to address the scale of the crisis?

SUMMARY
IIMF's recent report on 2021 SDR allocation is a strong argument for
further allocations to support global economic recovery
SDRs allocations must be accompanied by reforms correcting existing
reallocation facilities

A new report by the IMF investigating the impact of the $650 billion
Special Drawing Rights (SDRs) allocation in 2021 was released in
August, arguing that the allocation was beneficial for the global
economy by providing rapid and unconditional liquidity, supplementing
reserves, restoring market confidence and maintaining lower borrowing
costs. While a large majority of member states across all income
groups agreed that the allocation was timely and necessary for the
global economy, 50 per cent of low-income and 35 per cent of
middle-income countries (LMICs) deemed it insufficient to meet their
financing needs. Indeed, despite its historic size, the allocation
was determined mainly by what was politically feasible within the US
– the IMF's largest shareholder – rather than actual financing needs
to address the crisis, which the UN estimated at $2.5 trillion.
The divergence in views is explained by the fact that SDRs
allocations are determined by the IMF's quota system, rather than by
countries' needs, and subject to US Congress approval (see Inside the
Institutions, What are Special Drawing Rights (SDRs)?). The
insufficiency of the allocation is further substantiated by
Latindadd's new report on the use of SDRs, highlighting that "the
impacts after the use of SDRs could have been greater if the global
issuance had been higher...given that the countries with the lower
quota shares are those with the greatest liquidity needs in this
context of multiple crises."
SDRs should be transformed into a broader liquidity instrument
While the G20 pledged to re-channel $100 billion SDRs for the benefit
of vulnerable countries in Oct 2021, some contributions have been
delayed by domestic legal frameworks. Despite aiming to correct SDR
allocation shortcomings, the Fund's re-channelling mechanisms create
additional negative externalities by transforming SDRs into debt,
creating access barriers and involving policy conditionality (see
Dispatch Springs 2022; Observer Spring 2022, Autumn 2021). When it
comes to re-channelling SDRs through multilateral development banks
(MDBs), the IMF's broad and imprecise definition of a reserve asset –
largely leaving it up to its shareholders – restricts MDBs' capacity
to provide 3 to 5 times more lending to LMICs. In the Eurozone, the
European Central Bank (ECB) is effectively blocking 27 per cent
($199.87 billion) of the world's SDRs belonging to EU member states
by stating that re-channelling through MDBs might interfere with the
reserve asset characteristic of SDRs.
While the Fund's largest shareholders have so far resisted a second
SDR general allocation citing – inter alia – inflation concerns, the
IMF's report showed that the 2021 allocation was not a significant
contributor to increased global inflation because it represented less
than 0.5 per cent of total global broad money in 2021, and only 5 per
cent of the total allocation was exchanged into freely usable
currencies. Consequently, a new allocation – in line with
longstanding civil society demands – is needed for struggling LMICs
facing recession and increased poverty.
tinyurl.com/SDRsAllocationImpacts

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CONDITIONALITY/news

Sri Lankan trade unions call out IMF and World Bank's dismantling of
country's social protection system in favour of ineffective targeting
schemes

As the fallout from Sri Lanka's economic breakdown and severe
austerity response worsens, an open letter from 82 trade unions in
August raised the alarm on the latest plan to dismantle the country's
social security policies by submitting the Employees Provident Fund
and Employees Trust Fund to domestic debt restructuring. With soaring
inflation including 95 per cent food inflation, IMF-demanded measures
such as doubling value-added tax (VAT), removing fuel subsidies and
raising electricity prices by 165 per cent have left the population
reeling. The Fund claims these impacts will be offset by a new
assistance programme called Aswesuma, designed together with the
World Bank, replacing Sri Lanka's existing social protection system.
However, critics fear this targeted cash transfer scheme will exhibit
all the failures of similar "means-tested" programmes, including
targeting errors, exclusion, corruption, costly bureaucracy, and
social stigma (see Observer Winter 2022, Summer 2019, Spring 2018,
Summer 2017). In response, a new civil society campaign led by
members of the Global Coalition for Social Protection Floors launches
in October, calling on the Bank and Fund to commit to supporting
universal public social security systems instead of dismantling them.
tinyurl.com/SriLankaSocialProtection

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